Friday, May 27, 2011

Morning Update/ Market Thread 5/27 - Money for Nothing Edition…

Good Morning,

Equity futures are higher once again in the face of obviously weakening data. The dollar is lower of course, bonds are a little lower, oil is higher, gold & silver are higher, and food commodities are mixed.

Stocks have been in a downtrend for most of May, but it has been a mild decline, one that looks like a wave 4. That means we will likely see a fifth wave higher, and that could start at any time. There is a clear down channel, or descending wedge, and breaking the upper boundary will likely signal that fifth wave higher has begun. Below is a 30 minute chart of the SPX:

According to McHugh, this fifth wave may take us to new highs and it could put in a very long decades long top as can be seen in this decade long expanding megaphone top of the DOW:

Personal Income and Outlays were reported for April, matching expectations with consumer spending basically matching small increases in income, but neither keeping up with actual inflation as the squeeze continues due to the money for nothing policies of the magical and mystical all-knowing “Fed.” Here’s Econohope acting as if these numbers have any basis in reality – they don’t as any number made “real” by the “Fed” is vastly distorted to cover up their money debauching ways:
Income growth continued to support the consumer sector in April. Spending was moderately strong but largely due to higher prices. Notably, inflation is still on the warm side. As the report's biggest positive, personal income in April posted a 0.4 percent gain equaling the pace in March and matching analysts' forecast. Importantly, the key wages & salaries component increased 0.4 percent, following a boost of 0.3 percent in March.

Spending looks healthy at face value but inflation was the underlying factor for the most part. Personal consumption expenditures expanded at a 0.4 percent rise in April after increasing 0.5 percent the month before. The consensus expected a 0.4 percent gain. Providing upward lift was another sizeable increase in gasoline sales. But real spending has been soft recently, rising 0.1 percent in April and in March after a 0.4 percent jump in February.

Strength in nominal PCEs was largely in nondurables, up 0.8 percent after a 0.9 percent jump in March. Durables rebounded 0.3 percent, following a 0.7 percent drop the month before. Services spending slowed to a 0.2 percent increase after a 0.6 percent jump in March.

Energy is keeping overall inflation on the high side. The headline PCE price index posted a 0.3 percent gain, down marginally from 0.4 percent in March but still strong. However, the core rate firmed to 0.2 percent from 0.1 percent in March.

On a year-ago basis, headline PCE inflation worsened to 2.2 percent from 1.8 percent in March. Core PCE price inflation edged up to 1.0 percent on a year-ago basis from 0.9 percent in March. Core inflation has been on an uptrend since the recent year-ago low of 0.7 percent in December 2010.

Year on year, personal income growth for April posted at 4.4 percent, compared to 4.8 percent the prior month. PCEs growth rose a year-ago 4.8 percent, up from 4.4 percent the prior month.

The good news is that income growth remains moderately strong. The bad news is that inflation has eaten into those earnings and has restrained real spending. The slowing in real spending may be transitory (a recently favorite word among Fed officials) but softer inflation and healthier income growth are needed.

No, what’s needed is level prices to go along with level incomes that can support sustainable levels of debt. The only way to do that is to get rid of the private central banker's rob-your-productive-efforts, fraud based paradigm.

At least this piece from Bloomberg on the issue is a little bit closer to reality on the health of the “consumer:”
U.S. Consumer Spending Climbed Less Than Forecast in April

May 27 (Bloomberg) -- Consumer spending in the U.S. climbed less than forecast in April as food and fuel prices rose, a sign that faster income gains are necessary to boost the biggest part of the economy.

Purchases rose 0.4 percent after a revised 0.5 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The increase compared with the 0.5 percent median estimate of economists surveyed by Bloomberg News. Incomes climbed 0.4 percent, matching the median forecast.

Retailers like Wal-Mart Stores Inc. are feeling the pinch as higher grocery and energy bills force households to cut back on less essential items. Federal Reserve Chairman Ben S. Bernanke is among central bankers who predict the acceleration in commodity prices will be temporary, providing some relief for Americans whose spending accounts for 70 percent of the economy.

“When you account for higher food and energy prices there’s barely anything left for consumers” to buy, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who accurately forecast the April gain in spending. “We need to see job growth pick up and we need to see commodity prices continue to cool.”

“Consumer” Sentiment and Pending Home Sales will be released at 10 Eastern. We'll cover those inside today's Daily Thread, so please check back later for those.

I could yammer endlessly about the impossible math of Europe, but impossible is impossible and the people of Europe will continue to be led down the primrose path until they tell the central bankers to pound sand.

The suffering in Japan continues, three nuclear meltdowns, massive contamination and still Nero fiddles.

As long as the bankers are allowed to print, they will continue to spin reality into their own warped, marketing all the time, Prozac, Viagra, never ending debt, world of lost economic prosperity and environmental disasters. Just look at them yo-yo's...